can appellate authority issue show cause notice under section 73 or 74 as per appeal section 107(11), Goods and Services Tax - GST

[HimangshuKumar Ray]

If the appellate authority not satisfied with the adjudication order, then he may issue show cause notice under section 73 or 74. My question is that here shall the appellate authority follow the time limit as specified said sections and shall they give personal hearing as enumerated in section 75(4), and shall they give 30 days time as law stated in section 73(8). Also I have another query is that the cross exmanination is embeded in section 107 ?, like investigation against supplier for ITC verification purpose.

Posts / Replies

[Sadanand Bulbule]

Dear Sir

Section 107[11] speaks as under:

(11) The Appellate Authority shall, after making such further inquiry as may be necessary, pass such order, as it thinks just and proper, confirming, modifying or annulling the decision or order appealed against but shall not refer the case back to the adjudicating authority that passed the said decision or order.

1] What emerges from the reading of the above, by virtue of powers vested in it and under its wisdom, the appellate authority can confirm or modify or annual the order passed under the respective provisions of the Act. by following due process of law. This includes the levy of tax/cess which should have been levied by the original adjudicating authority otherwise, provided if the revenue files an appeal to this regard.

2] There is no provision for cross-examination. However the appellate authority can [will] cross check the facts of both the parties before taking any suitable decision.

3] Sufficient opportunity of personal hearing is normally granted, at least three times under Section 107[9].

4]The time limitation prescribed under Section 73/74 shall not apply to the appeal order to be passed by the appellate authority.

[Sadanand Bulbule]

Dear Sir

Please also note the following proviso to Section 107[11]:

Provided further that where the Appellate Authority is of the opinion that any tax has not been paid or short-paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised, no order requiring the appellant to pay such tax or input tax credit shall be passed unless the appellant is given notice to show cause against the proposed order and the order is passed within the time limit specified under section 73 or section 74.

However, the time limit available to the original authority under Section 73/74 shall also equally apply to the appellate authority provided the ingredients of Section 73/74 are established. Otherwise in normal cases, it does not apply.

[HimangshuKumar Ray]

thank you sir

[HimangshuKumar Ray]

sir, here what is the meaning of "Modify" by the appellate authority ? is it mean to say modify meaning reduce or enhance or both ?

[Sadanand Bulbule]

Dear Sir

"Modification" generally refers to the act of changing,altering or amending something that is already established. So it includes " enhancement" on merits as well.

[VENU K]

I have a doubt here as to the order in which the words Confirm, Modify, Annull are given. They are given in a decreasing degree or order .So I feel it is not possible to interpret the word "Modify" as enhancing.

In rules of interpretation when words are in a decreasing order one cannot substitute or insert a word differently. For example Copper,Aluminium,Iron is fine but inserting gold in the middle and making it  Copper,Aluminium,Gold,Iron . is not fine since the words originally used were in order of decreasing value.

This view also gets reinforced when we read provision 108 regarding powers of revisional authority where the words used are " Enhancing, Modifying or Annulling the said decision or order". Here also the decreasing order is maintained. Please note that there is no question of Confirming the decision by a revisional authority.

In my opinion if the draftsman had wanted to give such a power to the appellate authority he would have clearly used the words "Enhance,Confirm,Modify,Annull"

Further any effort by an appellate authority to redo an adjudication will not be viewed very favourably by the courts , in my opinion.

[Sadanand Bulbule]

Dear Venu Sir

While welcoming your meaningful thoughts on the subject under discussion, my understanding is:

1] The courts have held that, the Appellate Authority is also co-extended assessing authority. So it can adjudicate under Section 73/74 as the case may be, if it warrants.

2] The second proviso to Section 107 [11] also enables the department to file an appeal in case it is aggrieved by the non-levy or short-levy of tax by the original adjudicating authority. And such an adjudication by the Appellate Authority paves the way for judicious adjudication to cover the non-levy or short levy of tax/cess by the lower adjudicating authority and brings parity.  So such adjudication does not lead to " enhancement of tax" to include it in the meaning of the word " modify" used in Section 107[11].

3] The meaning of "modification" referred by me is general sense and not in the context of Section 107[11].

[KASTURI SETHI]

I concur with ALL the views of Sh. Sadanand Bulbule Sir Ji. The vast powers to the Appellate Authority have been vested in Section 107 (11) of the CGST Act. The emphasis is also laid on the expression, 'as it thinks just and proper'.

[Sadanand Bulbule]

Dear Sh.Sethi Sir ji

Thanks for your validation. Here the object of extending 'adjudication powers' to the Appellate Authority is that revenue should no go remedy less, in case it has suffered loss in the hands of the lower authority culminating in an unjust enrichment by the appellant. Equity is the essence of judicious adjudication.

[Padmanathan KV]

Venu Ji,

I beg to differ. On reading section 107 in entirety especially proviso to section 107(11), what emerges is that Powers of the First Appellate Authority is co-terminus with that of Adjudicating authority. This is more so because he does not have the power to remand the case back to Adjudicating Authority. Therefore, In my opinion, modification will include enhancement also, subject to principles of natural justice & proviso to section 107(11).

[KASTURI SETHI]

As per judgement of Hon'ble Supreme Court, "The word, "modify'" in Section 60 of the Bombay Municipal Boroughs Act includes enhancement-----Western India Theatres Vs. Municipal Corporation - 1958 (1) TMI 35 - SUPREME COURT,

[VENU K]

Dear sirs,

Sadanand Bulbule,Kasturi Sethi and Padmanathan.

Thank you  for your enlightening views on the subject.

[HimangshuKumar Ray]

Thank you all Sir, Mam, for sharing of valuable thoughts and discussions

[VENU K]

I found the following discussion on page number 1232 of Background Material on GST Volume II published by The Institute of Chartered Accountants of India. Sharing the same as I feel this also could be illuminating on the discussion we had.

Notice by Appellate Authority - Provisos to Section 107(11)

While it is uncommon for Appellate Authority to issue a ‘show cause notice’, the express language in the two provisos to section 107(11) make it clear that Appellate Authority is permitted to issue a ‘supplementary’ show cause notice. And the order of Appellate Authority in respect of such supplementary notice is subject to statutory limitation and the consequent safeguard in section 75(10). Further, reference to rule 109C reiterates that show cause notice can be issued under section 107(11).

Analysis

First proviso – contains authority to ‘enhance’ any fee, fine or penalty that was imposed in adjudication. Now it is important to note that section 107(11) itself permits Appellate Authority only to “pass such orders confirming, modifying or annulling” and there is no express authority for Appellate Authority for “enhancing” which exists in section 108(1). However, the unequivocal language in this proviso cannot be rendered otiose.

Instance when such enhancement may be harmonized would be where Proper Officer has confirmed penalty less than that the statutory minimum prescribed, say, in section 73(9) or in 75(8). And when, for other reasons, taxpayer carries the order of Proper Officer in appeal, Appellate Authority is empowered to “enhance” the penalty.

However, such harmonization is hardly possible in case of fee – which is levied under section 47 – as no notice under section 73 or 74 could possibly be issued to demand such fee. There would not be any occasion when an appeal involving such fee would come for consideration by Appellate Authority.

And fine must only refer to redemption fine under section 130(2) which, when carried in appeal, having already been examined and imposed by Proper Officer based on facts of the case, taxpayer cannot be worse-off at the end of appeal than at the start. And appeal is not an exercise to re-appreciate material on record when once such material have been appreciated by a competent officer and a conclusion reached based on the facts and the law. Appeal is not yet another opportunity to re-do adjudication by an officer of higher rank. Not even when the quantum of redemption fine is suspiciously liberal and yet somehow the matter is carried in appeal by taxpayer, no such enhancement would be possible. For these instances, revisionary proceedings under section 108(1) are available to Revenue. But when the appeal is carried by Revenue seeking enhancement of redemption fine imposed, this proviso is not pressed into service.

Second proviso – is capable of correcting computational errors and not substitute with a fresh notice. Where tax is demanded but applicable cess is omitted in adjudication. For e.g., where tax is demanded under one classification, it cannot be replaced with a different classification, for the vice that this would be a fresh notice. Appellate Authority is excluded from definition of Adjudicating Authority in section 2(4).

Interestingly, the expression in this proviso is not “enhance” but apparently unhindered when it refers to “any tax or credit”. Care must taken not to read this proviso as authorizing Appellate Authority to issue an altogether new notice. Safeguard is found in the fact that such liability must be based on “opinion” formed by Appellate Authority. No such opinion can be formed by calling for new records and material but formed from the material already available on record being the ‘relied upon documents’ in notice and additional material introduced during adjudication. If no such “opinion” can be formed without calling for new records and material, then Appellate Authority must limit the scope of fact-finding during appeal to the grounds agitated against order of adjudication